Utilities halt planning

Merger in doubt amid furor over BGE rates, Constellation says

May 31, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

Merger-related planning between Constellation Energy Group Inc. and a Florida utility owner has stopped at least temporarily amid the political uproar over rising electric rates, and the Baltimore company's chief executive said yesterday that there's no telling whether the $10 billion deal will survive.

The drama in Annapolis and in regulatory hearing rooms over the average 72 percent rate increase proposed by Constellation's Baltimore Gas and Electric Co. unit has endangered the merger strategy on which Constellation has staked its future, led credit reporting agencies to downgrade its debt rating and contributed to its falling stock price in recent months.

Constellation Chief Executive Mayo A. Shattuck III made the comments about merger planning hours before a Baltimore circuit judge ruled that the company must disclose broad details about the merger and financial dealings as part of more expansive regulatory hearings on a rate mitigation plan. Baltimore Mayor Martin O'Malley's administration had taken Constellation to court to gain access to the information.

"We can't have people hearing, thinking that they're working on something that might not come to fruition," Shattuck said during a briefing with reporters.

The merger between Constellation and FPL Group Inc. of Juno Beach, Fla., if approved by federal and state regulators, would require a major integration of computer systems and personnel. Typically, companies involved in such mergers spend many months and millions of dollars preparing for the transition.

Those activities gradually came to a stop, Constellation and FPL officials said, as the companies realized that the debate over BGE's rates would drag on for weeks after the General Assembly session, with no end in sight and no certainty about the outcome. The companies are continuing efforts to win regulatory approval.

The fate of the merger could be important in the effort to reduce the BGE rate increase, because lawmakers and consumer groups have tried to link approval of the merger to financial concessions for consumers. A rate mitigation plan struck between Gov. Robert L. Ehrlich Jr. and Constellation and approved by state regulators would delay the full impact of the rate increase and require the company to finance the deal in part with merger-related savings of $60 million per year for 10 years.

Constellation has said that it needs the merger to expand its primary business - buying and selling power to large industrial customers, municipalities and other buyers in unregulated markets. That business - which is separate from BGE - has driven the company's recent record profits and is the reason FPL, which is mostly a regulated utility, wants to join with Constellation.

"Both parties are working very hard to get this deal done," said Steve Stengel, a spokesman for FPL. "But in light of the political uncertainty, both parties have decided to temporarily put integration activities on hold."

Constellation spokesman Rob Gould said it made sense for employees to focus on day-to-day operations until the situation is resolved.

"There is a lot of uncertainty, for example, in terms of the calls for a special session and what the scope of the special session would involve," he said. "There's uncertainty as it relates to the Public Service Commission and its future."

Maryland House and Senate leaders have asked Constellation to provide a wide range of financial information in what could be a precursor to a special legislative session to ease the proposed BGE rate increase. The information sought is similar to that which will come to light in new hearings ordered yesterday by the court.

If a special session occurs, many expect that Constellation would be asked to contribute potentially hundreds of millions of dollars toward rate relief - possibly by giving back $528 million in so-called stranded costs the company received when it took over BGE's power plants as part of the move toward deregulation. Constellation has said that it would challenge any such move in court.

Many Maryland lawmakers have said they want to pass legislation firing PSC commission members seen as too cozy with industry and replace them with others who would be more consumer-friendly. That could spell trouble for the merger, since the PSC is charged with signing off on such deals.

But lawmakers say that before considering a special session, they need more information from Constellation. The company was expected to comply with that request today.

"We're not trying to affect the merger," said Senate President Thomas V. Mike Miller. "All we want is straight answers."

Miller said Constellation has not provided key financial details about the merger, executive salaries and the profits it makes by selling power to BGE. He says lawmakers need the information before they can come up with an alternative plan to help consumers.

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